Banks and wire houses are emerging in the vanguard of retirement plan sales as financial services companies scramble to capture assets from the aging baby boomer generation, plan providers say.
These financial services companies are particularly well-suited to capture 401(k) business because of their ability to leverage existing banking and brokerage relationships with small businesses and business owners, according to big providers like Hartford Financial Services Group Inc., Fidelity Investments, and Principal Financial Group.
Hartford reported a 20% rise in 401(k) plan sales across the board in the second quarter, compared with the year earlier, but sales through banks and wire houses were particularly robust, said Jim Davey, a vice president of corporate retirement plans at the Hartford, Conn., insurance giant. Overall, 401(k) sales grew to $663 million. A breakdown of sales in the bank and wire house channels was not immediately available.
"From our standpoint, we've seen" the bank and wire house channels grow, Mr. Davey said.
Usually, most of Hartford's 401(k) business has come through the independent adviser channel, he said. In the past two years, however, the company has worked harder on the bank and wire house channels, he added.
The company's bank distribution partners include Bank of America Corp. and the former Bank One Corp., bought last year by JPMorgan Chase & Co. Hartford employs wholesalers who sell the company's 401(k) products exclusively, Mr. Davey said.
The insurer offers two 401(k) products: a group variable annuity and a group funding agreement that is similar to a mutual fund in that it has a published net asset value. The group funding agreement, called The Hartford Aviator, is geared toward plans with more than $3 million of assets, and the group variable annuity generally is targeted to smaller plans.
Both 401(k) products offer 35 to 40 money managers, including American Funds and Franklin Templeton Investments. Hartford's average plan size is just under $1 million of assets.
Banks and wire houses have become particularly important to the 401(k) marketplace in recent years because plans that were start-ups at the height of the stock market bubble in the late '90s have grown and are seeking more extensive servicing options, said David Liebrock, an executive vice president at Fidelity. The Boston fund management giant sells 30% to 40% of its 401(k) plans through the bank and wire house channels, he said.
Small to midsize plans - those with five to 1,000 employees - have seen especially high provider turnover, Mr. Liebrock said; 6% to 9% of these plans changed providers last year, he said. Plans of that size aggregate about $800 billion of assets, he said. Because smaller companies lack resources, they often turn to advisers such as those available through banks and wire houses to help them administer their 401(k) plans, he said.
"The marketplace is looking for and wants … an expert to help them sift through all the issues," Mr. Liebrock said. Plan sponsors are becoming more acutely aware of their fiduciary responsibilities and are looking for advisers to help them address the concerns, he said.
"Plan sponsors are starting to understand that the 401(k) is the only retirement vehicle an individual is going to have," he added. "They need an adviser intermediary to help them make sure people have saved enough for retirement."
Fidelity offers personalized education and enrollment materials to help advisers with servicing plans, Mr. Liebrock said. For example, it sends out customized education materials to participants based on financial information obtained from advisers to help participants determine deferral amounts.
Principal, the Des Moines insurer that is one of the largest in the 401(k) business, has also seen an upswing in 401(k) sales through banks and wire houses, said Kevin Morris, a retirement investor services marketing officer. The company has about 150 pension plan wholesalers, 20 of whom focus exclusively on sales through wire houses.
About one-third of the company's 401(k) plan sales are through wire houses, Mr. Morris said. Distribution partners include UBS AG, the Swiss banking company with a big U.S. operation, and A.G. Edwards & Sons Inc., a St. Louis brokerage company.
Banks have supplied a much smaller share of Principal's 401(k) plan sales, he said, but the insurer plans to crank up its bank channel sales effort in the next few months. "We'll be establishing a significant strategy for the bank channel in the coming months," he said. "The bank channel is growing and becoming more prevalent in the marketplace."
These efforts may include hiring wholesalers to focus solely on retirement plan sales through banks, he added. Many banks already lend to small businesses and can leverage these relationships to sell 401(k) plans, he said.
